CPA FAR
FINANCIAL ACCOUNTING AND REPORTING
2026–2027 ADVANCED PRACTICE EXAM
200 Original Practice Questions • Answers • Detailed Rationales
Format 200 challenging multiple-choice practice
questions
Includes Correct answers and detailed rationales
Focus Advanced certification preparation and
scenario-based application
Edition 2026–2027 independent practice edition
,Topics Covered
• Financial statement presentation
• Revenue recognition
• Inventory and long-lived assets
• Bonds and financial instruments
• Leases and pensions
• Equity and earnings per share
• Statement of cash flows
• Governmental and not-for-profit accounting
,1. Under accrual accounting, revenue is generally recognized when:
• Cash is always received
• The applicable recognition criteria are satisfied
• An invoice is printed regardless of performance
• A customer expresses interest
Answer: The applicable recognition criteria are satisfied
Rationale: Accrual accounting recognizes revenue when the relevant recognition
requirements are met, not simply when cash is collected.
2. A finance lease is generally recognized by the lessee through:
• Recognition of a right-of-use asset and lease liability, subject to applicable
exceptions
• Immediate recognition of all future payments as revenue
• No balance-sheet recognition under any circumstances
• Recognition only when the lease ends
Answer: Recognition of a right-of-use asset and lease liability, subject to applicable
exceptions
Rationale: Modern lease accounting generally requires recognition of the leased right
and corresponding obligation, subject to specific exemptions.
3. A write-down of inventory generally results in:
• A reduction in inventory carrying value and recognition of a loss or expense
• An increase in inventory
• An increase in revenue
• No effect
Answer: A reduction in inventory carrying value and recognition of a loss or expense
Rationale: Inventory is reduced when its carrying amount exceeds the amount permitted
under the applicable accounting rules.
4. A bond issued at a discount generally has an effective interest expense that is:
• Greater than the cash coupon expense during the discount amortization period
, • Always zero
• Less than the coupon in every period
• Equal to principal repayment
Answer: Greater than the cash coupon expense during the discount amortization period
Rationale: The effective interest method recognizes interest based on the carrying
amount, causing discount amortization and interest expense above the cash coupon.
5. The statement of cash flows classifies cash flows into:
• Operating, investing, and financing activities
• Assets, liabilities, and equity
• Revenue and expenses only
• Current and noncurrent items
Answer: Operating, investing, and financing activities
Rationale: The cash flow statement explains cash movements through these three broad
activity categories.
6. In a challenging certification scenario, under accrual accounting, revenue is
generally recognized when:
• Cash is always received
• The applicable recognition criteria are satisfied
• An invoice is printed regardless of performance
• A customer expresses interest
Answer: The applicable recognition criteria are satisfied
Rationale: Accrual accounting recognizes revenue when the relevant recognition
requirements are met, not simply when cash is collected.
7. During a professional review, a finance lease is generally recognized by the lessee
through:
• Recognition of a right-of-use asset and lease liability, subject to applicable
exceptions
• Immediate recognition of all future payments as revenue
FINANCIAL ACCOUNTING AND REPORTING
2026–2027 ADVANCED PRACTICE EXAM
200 Original Practice Questions • Answers • Detailed Rationales
Format 200 challenging multiple-choice practice
questions
Includes Correct answers and detailed rationales
Focus Advanced certification preparation and
scenario-based application
Edition 2026–2027 independent practice edition
,Topics Covered
• Financial statement presentation
• Revenue recognition
• Inventory and long-lived assets
• Bonds and financial instruments
• Leases and pensions
• Equity and earnings per share
• Statement of cash flows
• Governmental and not-for-profit accounting
,1. Under accrual accounting, revenue is generally recognized when:
• Cash is always received
• The applicable recognition criteria are satisfied
• An invoice is printed regardless of performance
• A customer expresses interest
Answer: The applicable recognition criteria are satisfied
Rationale: Accrual accounting recognizes revenue when the relevant recognition
requirements are met, not simply when cash is collected.
2. A finance lease is generally recognized by the lessee through:
• Recognition of a right-of-use asset and lease liability, subject to applicable
exceptions
• Immediate recognition of all future payments as revenue
• No balance-sheet recognition under any circumstances
• Recognition only when the lease ends
Answer: Recognition of a right-of-use asset and lease liability, subject to applicable
exceptions
Rationale: Modern lease accounting generally requires recognition of the leased right
and corresponding obligation, subject to specific exemptions.
3. A write-down of inventory generally results in:
• A reduction in inventory carrying value and recognition of a loss or expense
• An increase in inventory
• An increase in revenue
• No effect
Answer: A reduction in inventory carrying value and recognition of a loss or expense
Rationale: Inventory is reduced when its carrying amount exceeds the amount permitted
under the applicable accounting rules.
4. A bond issued at a discount generally has an effective interest expense that is:
• Greater than the cash coupon expense during the discount amortization period
, • Always zero
• Less than the coupon in every period
• Equal to principal repayment
Answer: Greater than the cash coupon expense during the discount amortization period
Rationale: The effective interest method recognizes interest based on the carrying
amount, causing discount amortization and interest expense above the cash coupon.
5. The statement of cash flows classifies cash flows into:
• Operating, investing, and financing activities
• Assets, liabilities, and equity
• Revenue and expenses only
• Current and noncurrent items
Answer: Operating, investing, and financing activities
Rationale: The cash flow statement explains cash movements through these three broad
activity categories.
6. In a challenging certification scenario, under accrual accounting, revenue is
generally recognized when:
• Cash is always received
• The applicable recognition criteria are satisfied
• An invoice is printed regardless of performance
• A customer expresses interest
Answer: The applicable recognition criteria are satisfied
Rationale: Accrual accounting recognizes revenue when the relevant recognition
requirements are met, not simply when cash is collected.
7. During a professional review, a finance lease is generally recognized by the lessee
through:
• Recognition of a right-of-use asset and lease liability, subject to applicable
exceptions
• Immediate recognition of all future payments as revenue
